Investment in India

Booming healthcare sector of India: A great opportunity for NRIs to invest

The Indian healthcare industry was US$ 65 billion during 2011-12 and is expected to reach US$ 280 billion by 2020. Large investments by private sector players are likely to contribute significantly to the development of India’s hospital industry, which comprises around 80% of the total market, according to the report ‘Indian Hospital Services Market Outlook’ by consultancy RNCOS. As per estimates by ratings agency Fitch, the sector is poised to grow to USD 100 billion by the year 2015.

Growth drivers of Indian healthcare sector

• Increase in patients population, increasing lifestyle related health issues
• Faster diagnosis leading to early treatment, awareness on preventive healthcare disorders
• Affordable treatment costs
• Thrust on medical tourism
• Improving health insurance penetration
• Increasing disposable income
• Medical insurance and mandatory wellness checks by corporate houses
• Government initiatives and focus on Public Private Partnership (PPP) models

Opportunities in healthcare industry of India

The Indian healthcare sector is ripe for the expansion and significant growth due to the reasons mentioned above. One of the main factors is increase in the space of medical tourism in India. Medical tourism in India is growing at a compounded annual growth rate of over 27 per cent during 2009-2012. Medical tourism market is valued to be worth USD 310 million and is expected to generate USD 2.4 billion by 2013 and is growing at 30 per cent a year.

It has created excellent investments opportunities for the non-resident Indians (NRIs) to provide much needed managerial and financial support. The following sectors have significant opportunities for the investors:

• Hospitals and Infrastructure: There is tremendous demand for tertiary care hospitals and specialty hospitals in India. There is a gap between the availability of the beds and required beds in the hospital in India which has made NRIs to invest in healthcare.
• Health Insurance: The percentage of the Indian population that has been covered under health insurance is unfortunately very insignificant. Though there is increase in number of health care insurance policies over past few years, majority of the population remains without any coverage. Growing size of middle class population in India that spends on healthcare has led to the emergence of health insurance market.
• Technology driven services: Significantly low presence of physicians in rural and semi-urban areas has led to the limited access to proper healthcare facilities for the people living in these areas. Telemedicine is considered to be one of the solutions to this lacuna in accessibility to health care services in rural and semi-urban areas. Growth of IT sector in India which plays crucial role in telemedicine has led to invest in healthcare sector.

Public-private partnership model in Indian healthcare

Private healthcare is coming forth as one of the fastest growing sectors in India, with chain hospital explorations into various cities (such as metros and tier II cities across the country), private players seeking accreditation and developing new healthcare models in recent days. Further, various states have launched innovative initiatives to attract PPP investments into healthcare space. These Public Private Partnership initiatives may help in improving the infrastructure and healthcare provision in the country for the needs raised.

Future of healthcare in India

There is a huge investment opportunities here for India, to maximise the use of diagnostics within the healthcare environment. We have got very good high-end labs, which are equivalent to any country around the world, said Mr Lance Little, Chairman and Managing Director, Roche Diagnostics India and South Asia.

Emerging Investment trends in Indian Healthcare Sector

The Indian healthcare industry is expected to reach US$ 79 billion in 2012 and US$ 280 billion by 2020, on the back of increasing demand for specialised and quality healthcare facilities.

Further, the hospital services market, which represents one of the most important segments of the Indian healthcare industry, is expected to be worth US$ 81.2 billion by 2015.

Meanwhile, the Indian pharmaceutical market is expected to grow at a compound annual growth rate (CAGR) of 15.3 per cent during 2011-12 to 2013-14, as per Barclays Capital Equity Research report on India Healthcare & Pharmaceuticals.

India is the most competitive destination with advantages of lower cost and sophisticated treatments, highlighted the RNCOS report titled ‘Indian Healthcare - New Avenues for Growth’. The report further elaborates that several key trends are backing the growth of healthcare in India.

Emerging trends in Indian healthcare industry

The healthcare sector is one sector that has witnessed tremendous entrepreneurial activity over the last few decades across the entire value chain. The emerging areas (diagnostics, pharma retail, biotechnology and life sciences) within healthcare are playing a significant role in attracting global players to India to set-up a number of allied industries in partnership with domestic players. This is also providing Indian entrepreneurs considerable opportunities to invest in healthcare. The way the current financial climate is shaping-up, an entrepreneur needs to think out-of of-the-box prior to making investments, as identifying the correct sector and the most suitable business model is key to survival and growth in the current times.

Investment trends in Indian healthcare sector

Driven by increased domestic demand for high-end investment services as well as medical tourism, the healthcare sector has attracted huge investment in recent times. Healthcare in India is likely to see increased investment from US$ 34.2 billion in 2006 to US$ 78 billion in 2012 (CAGR of 15 per cent), with 80 per cent of investments from private players. The investments to this scale are expected to increase the bed ratio from 0.9 beds per 1000 people to 1.85 beds per 1000 people.

Moreover, large scale investments in infrastructure are required to make healthcare facilities at par with developed countries.

According to a survey conducted by consulting firm, Grant Thornton, India is expected to witness the largest number of merger and acquisitions (M&A) in the pharmaceutical and healthcare sector in 2012. The survey that was being conducted across 100 companies stated that fourth of the respondents were bullish on acquiring companies in the pharmaceutical space.

"The expectations of M&A activity in the pharma and healthcare sector could be explained by factors such as the impending patent cliff in the US, the increasing attractiveness of India as a low-cost R&D destination and the increasing success of Indian firms in getting ANDA approvals," said Sunil Makharia executive VP (finance) Lupin Pharmaceuticals. Patent cliff refers to expiry of legal protection to top-selling drugs.

Government Initiatives

The healthcare sector in India is witnessing a growth trajectory. The Government has taken several steps required for non-resident Indians (NRIs) to invest in healthcare and to develop healthcare sector infrastructure within a short span of time. The Government has decided to increase health expenditure to 2.5 per cent of the gross domestic product (GDP) by the end of the Twelfth Five Year Plan (2012-17) from the current 1.4 per cent.

Growing Healthcare Market in India

India is one of the most profitable healthcare markets globally. The sector is one of the largest and rapidly-growing sectors in India, in terms of revenue and employment. The Indian healthcare sector comprises the sub-sectors of hospitals, medical infrastructure, medical devices, clinical trials, outsourcing, telemedicine, health insurance and medical equipment.

The main challenge is to deliver affordable health care services to India's billion-plus population. This signifies enormous opportunities for the medical community and other service providers in India. The leading factors supporting the growth of the industry are- prevalence of various diseases, rising urbanization, untapped market, increasing life expectancy, and active private sector participation. The healthcare in India is controlled mostly by major foreign companies. The foreign companies have subsidiaries in the country, mainly because of the availability of cheap and skilled labor.

The Indian healthcare sector is a rapidly-growing sector with high potential for future growth, both in urban and rural India. In the year 2011, the sector was sized at US$ 50 billion as it employs a total of 4.5 million people directly and indirectly within India. The sector is poised to grow to US$ 100 billion by the year 2015 and further to US$ 275.6 billion by 2020, according to the estimates by ratings agency Fitch.

FDI in Hospitals and Manufacture of Medical and Surgical Appliances

The economic reforms launched by the government from 1991 onwards have resulted in significant economic growth and the integration of India into the global economy. With the opening up of the Indian capital markets to Foreign Institutional Investors, the foreign direct investment regime too has been increasingly liberalised.

The health care industry in India has been witnessing a potential upsurge for the past few years especially in the hospitals and manufacturing of medical and surgical appliances.

The total inflow of FDI in India in the hospitals and diagnostics sector was US$ 1 billion from April 2000–April 2011, according to Department for Industrial Policy and Promotion (DIPP), which is responsible for formulating the FDI policy in the country.

FDI inflows to medical and surgical appliances are estimated to be around US$ 20.5 million. Medical and Surgical Appliances is Rs 981.7 million industry with a share of 10.59 percent in the global market.

Some of the government initiatives boosting Indian healthcare sector are:

There have been a number of initiatives taken up by the Government of India for the enhancement of healthcare sector in the country. Some of them are:

100 per cent foreign direct investment is permitted for health and medical services under the automatic route.

The National Rural Health Mission had allocated US$ 10.15 billion for the up gradation and capacity enhancement of healthcare facilities. The aim of NRHM is to provide facilities of quality healthcare in India.

In March 2010, the government allocated an additional US$ 1.2 billion for six upcoming AIIMS-like institutes and upgradation of 13 existing government medical colleges in order to meet revised cost of construction.

FDI in Indian Pharmaceutical Market

The pharmaceutical industry in India is one of the largest and most advanced among the developing countries. The industry stands third in the world in terms of volume. It ranks 14 in terms of value and is expected to grow 8 to 9 per cent annually. According to a research done by Associated Chambers of Commerce and Industry (Assocham), the Indian pharma industry is expected to reach US$ 20 billion by 2015, making it one of the world's top 10 pharmaceuticals markets.

In India, there are many small sectors, medium sectors, private limited companies and public companies that have been consistently manufacturing various medicinal products to meet the increasing demands of the people. The foreign investors can invest in Indian companies through the purchase of shares, debentures, equities, or bonds from an Indian company.

Pharma industry in India is growing at a rapid pace, marked by a number of mergers and acquisitions and growth in foreign expenditure. The sector is going to be a major area of focus in the coming years as Indian medicines are increasingly becoming popular in many developed and developing countries because of the cost effectiveness and easy availability.

India saw FDI inflow of US$ 341.49 million in the drugs and pharmaceuticals sector between April 2009 and February 2012. Also, the government has liberalised investments made by registered Foreign Institutional Investors (FIIs) under the Portfolio Investment Scheme (PIS) from April 10, 2012. Earlier, these spendings required approval from the government.

There are numerous ways for foreign company to enter in to an Indian market. Different types of foreign investment in India are:

Green field investment is FDI when a company establishes a subsidiary in a new country and starts its own production. It involves construction of a new plant, rather than the purchase of an existing plant or firm. According to the latest rules of Reserve bank of India (RBI), FDI, up to 100 per cent, under the automatic route, is permitted for green field investments in the Indian pharmaceutical sector.

Brown field investment is FDI that involves the purchase of an existing plant or firm, rather than construction of a new plant. For e.g. many host countries encourage the formation of joint ventures, as a way to build international cooperation. Joint venture is an equity and management partnership between the foreign firm and a local entity in the host market. FDI, up to 100 per cent, under the government approval route, is permitted for brown field investments in the Indian pharmaceuticals sector. Under the new rules, the overseas investor will have to seek permission from the Foreign Investment Promotion Board (FIPB) for any merger or acquisition.

In India, the cost of setting up research and development laboratory, scientific equipments, administration costs, transportation cost, raw materials cost and licensing procedure is much less when compared to any developed countries. The main determinants of FDI in India are availability of huge natural resources, cheap labor, steady economic growth, huge benefits and concessions granted by government, increasing population and per capita income, etc. So, there are huge opportunities for foreign investment in India.

Business Opportunities in HealthCare Market in India

The healthcare sector in India is growing fast. The sector is currently estimated to be worth US$ 65 billion and is expected to reach US$ 100 billion by 2015, according to the rating agency Fitch. The growth in the sector comes due to- increasing population, growing lifestyle-related health issues, economic treatment, rising incomes, government initiatives, etc.

India is the first country to have a large number of multinational healthcare providers. This rapidly developing industry in India has led to a qualitative shift in patient demands. This has resulted in centers of medical excellence developing and acquiring the latest medical equipment to treat their domestic and international patients.

Due to the development in the rural areas, people even in the villages are now become more conscious about their health issues. They are opting for more health benefits for safe and diseases free existence. This will create huge investment opportunities in the sector.

Opportunities for investment in Healthcare

Healthcare infrastructure: A huge amount of private capital will be required in the coming years to meet infrastructure needs of healthcare in India. An additional 2 million beds are required for India to bridge the gap and prepare for demand estimations in 2025. The government is expected to contribute only 15-20 per cent of the total, providing a vast opportunity for private players to fill the gap.

Diagnostic & Pathology Services: High cost difference in India allows for outsourcing of pathology and laboratory tests by international hospital chains

Telemedicine: There is a vast opportunity for investment in telemedicine as it provides rural areas access to better quality healthcare.

Medical tourism: Medical tourism in India has also received a boost with the arrival of patients from different countries. According to industry estimates, the market size of medical tourism is estimated to be around US$ 2.5 billion and is growing at over 25 per cent per annum. Hence, create enormous investment opportunities in India.

Contract Research: Contract research is a rapidly growing segment in the Indian health care industry. Foreign players are entering into contract research to reduce their operational and clinical cost.

Health Insurance: Increasing healthcare cost and burden of new diseases along with low government funding has raised the demand for health insurance coverage. Less than 15 per cent of the Indian population is covered through health insurance. With the increasing demand for affordable quality healthcare in India, the penetration of health insurance is poised to grow rapidly in the coming years.

Major Growth Drivers

• 100 per cent FDI is permitted for all health-related services under the automatic route.
• Lower tariffs and higher depreciation on medical equipment.
• Income tax exemption for five years to hospitals in rural areas, Tier II and Tier III cities.
• Increasing penetration of health insurance.
• High-growth in medical tourism.

Pharmaceutical Industry in India – A Key Player in Outsourced Medical Research

The pharmaceutical industry in India has become a powerful and self reliant industry during the last decade. This industry has been growing even when the other industries have shown declination in their business. By 1980s, India had become the leading producer of drugs devoid of patent protection. The Indian Pharmaceuticals had moved on to making drugs for cancer and AIDS. From 1990 onwards, this industry had acquired a modified role of utilizing a direct to consumer way of advertising and producing SSRIs such as Prozac. With the high revenue from many drugs which were a runaway success, this industry expanded from the 1990s to the 2000.

The state health care industries in India
The Indian healthcare industry is considered to be one of the most profitable markets and is on the way to expand further according to the latest reports. India is more competitive because of the low cost and the sophisticated treatments offered at hospitals. There are many key trends which are boosting the healthcare sector in India. Medical city is one of the latest concepts offering great opportunities. Similarly, there are great prospects for day care surgery. The latest infrastructure is known to maintain around 60% of surgeries if done on a day care method.

The pharmaceutical industry in India is one of the countries which are all set to receive the highest R&D dollars, ahead of countries like Russia, China, Israel, Philippines, Canada and Ireland. India has the advantage of having sophisticated infrastructure and the highest English speaking clinical community with graduates who are trained in the west. The affordable operations, remarkable quality management and technology have made it one of the most sought after countries.

Standing in the world
The Pharmaceutical industry in India is the third largest in the world today in volume and ranks 14th in terms of value. The sales of every kind of drugs in the country are all set to reach US$ 19.22 billion in the year 2012. The exports of pharmaceutical items from India have also increased and have joined the league of the top 10 pharmaceutical companies in the global market currently. The Indian pharmaceutical companies have made a mark in both the world market and the Indian market with their skills in reverse processing and manufacturing low cost medicines.

The Healthcare industry in India is controlled mostly by major foreign companies, though there are many purely Indian pharmaceutical companies too. The foreign companies have subsidiaries in this country, mainly because of the availability of cheap labor. However, the 1970 Patent Act permits multinationals only 35% of representation in the market, which has decreased by 70% than what it was thirty years before. The domestic pharmaceuticals companies in India is a blend of private and public enterprise, like all the other businesses in this country. In the global market, India currently has a modest share of 1.2%; however, it has been growing around 10% yearly. Indian has managed to grip the global market with its new engineered generic medicines and active pharmaceutical elements.